tv On the Move Bloomberg June 4, 2015 3:00am-4:01am EDT
mario draghi says get used to behind in volatility. a deal is in sight, according to alexis tsipras. he says don't worry about the payment. coming up in this show from the world economic forum we will catch up with the south african central bank governor. at 8:00, you can watch that. i am looking at futures. dax futures up by 45 points. european markets just opening up. manus cranny has that for you. manus: this is day three of the decline in the european equity market. let's take you inside. we have a couple of big calls. london is down. volatility, if you look through the day three of the stock
market dropping volatility -- traders believe in 3-6 months you will see less volatility. alexis tsipras had a swagger in his departure in the news conference when he said the bill was paid. they say the stoxx 600 will be up. let's see what is driving the system. you have the national grid down 4%. you have nice load factors. the total volume of passengers is up over 6.4 there is one thing that is driving this as mario draghi said get used to it. bond yields are ratcheting higher. the biggest move since 1998.
this is the biggest move on the bloomberg reference since the birth of the euro. there is more to go. these are not that fairly valued. i loved what mario draghi said wouldn't it be a high-class problem if you had to start talking about withdrawing from liquidity. a couple of individual names, syngenta one of those stories that will just run and run. this is the abs 83.25. they had discussions in regards to going for syngenta could a.m. fmv that white tonight? basf, syngenta, will that trump
monsanto? is there less regularity -- regulation? i talked long enough and it opened. deutsche telekom, where there's a will there is a way. 6.4 9 million passengers versus 6.05, always good to be precise. deutsche telekom up. t-mobile up -- t-mobile and dish are discussing a merger. the stock is up 1%. that would be a boom furred deutsche telekom, if they could offload t-mobile. the yen is strengthening against the dollar. here is the euro. you have the biggest two-day rally in the euro since 2009.
there was this resurgence in the euro. the consistent -- it is the biggest two-day rally since march 2009. jonathan: a softer open in london. four minutes into the session you thought europe was interesting let's go to yvonne man in hong kong. yvonne, run it through the action in asia. it is pretty difficult to keep up. yvonne: i can't keep up either. what a difference an hour and a half makes. earlier we're talking about a pairing of losses down 3%. backup in the shanghai composite. volumes though still at 80% for
both markets from that 30 day average at this time of trading. again volatility mario draghi is talking about it, here it is. this is one week ago when we saw 6.5% plunge in the shanghai composite. there are ups and downs. when it comes to that 5000 level, we seem to be hitting it and then we hit a wall once week -- once we hit that level. a lot of analysts were concerned once we hit this level. we have been talking about, is this a bubble? we got the securities, brokerage, one of them in china, they are since ending margin financing for those small cap stocks. they are citing recent gains. we have seen more than 150% up
year-to-date for small-cap stocks in china. a high price to earnings ratio. there is speculation from analysts that more brokerage could come. china cleaning up. $4 trillion added to the value of chinese shares. there have been headlines coming from the bank of japan, here is you go corrado -- allies have been talking about how the yen strength has been corrected. policymakers are not speaking about declines further in the yen. jonathan: great work. here is what is coming up, a very busy hour. we speak to the head of the south african central bank. then we bring it back to europe where the bomb cell is in full stride. we will break it down. after calling that bond selloff, bill gross has a new short.
those stories and many more coming up. for now let's head out to cape town, the world economic forum with the theme of reimagining africa's future. anna is there. anna: the 25th world economic forum in cape town this week. let's bring in our next guest the governor of the central bank. governor, thank you so much for giving us your time. what are you expecting to get from the forum? is it a good forum? >> it has always been a good forum. this is the second one i am attending in cape town since i have been in the reserve bank. i think the one thing about the forum is it is something for everyone. i participated in sessions about
african competitive markets. i have also participated in nation inclusion. there are at least three sessions on financial trading. anna: let's talk about the south african economy and focus in on the currency, how week will it get from here? >> how strong can it get from here? south african lend is traded globally. we have invested 70% offshore. we are running a floating exchange rate. we do not decide the exchange rate. the value is determined by supply. anna: are you at the mercy of
the fed? are you expecting them to increase interest rates? >> it goes without saying, there is development elsewhere, when the said embarks on this -- it became an important driver of the rand. when they said indicated they were coming to defend quantitative easing, we saw the currency we can w --eaken. we have seen the currency as a shock absorber. we expect that when they lift takes place, there will be a a
financials -- south african asset. we can also expect a repricing of the exchange rate. there is lift off this time around it is not as clear. it is taking place at the same time europe and japan embarked. it is not -- what is the impact of the fed relative to ecb's quantitative rule. anna: how concerned are you about manipulation in the south african currency? do you see it as widespread as the commission? >> i think for us when these
things came out we decided we are going to embark on a review. when we embarked on it, we felt we wanted well functioning markets. we reviewed the process. we put in a code of conduct. and we put in a oversight committee. any unbecoming behavior is we see, we could interview. we then embarked on the fx review. it is not because we saw anything wrong. when out of the u.s.
manipulation came out -- if there was manipulation we would condemn it. anna: do you think science could result -- do you think fines could result? >> if they do the investigation, then we would propose that. anna: is it a side matter or systemic? >> it is not systemic. it is a market conduct issue. i think it is important as customers of the financial product to know the provider is
conducting business with high levels of ethics. to the extent that there is manipulation in the market or any financial product we went do something. anna: was there a whistleblower? or was this discovered as part of the review? >> we just did a review. anna: let's talk about interest rate policy for south africa. you decided to keep rates unchanged. if it is rate -- if it is right for interest rates to be higher, why not hike them? >> the data did not suggest we should hike them.
if you take the cycle we started in january, we went on a tightening cycle. in march we said we are taking the finger off the pause button. in may we said we would recommend that. i think it is importance to not take markets by surprise. we are just taking our finger off the pause button. anna: it seems that inflation could be set to exceed your target. at the same time the economy
looks sluggish. how much can the interest rate -- how much can the economy sustain from a interest rate hike? >> it should not put constraints on our ability to grow. at the same time we are seeing a convergence between the growth any potential growth rate and the actual rate. our forecast shows that in the third quarter of next year inflation will be 6.8. anna: governor, thank you very
much for joining us today. from the world economic forum. i will hand it back to you. jonathan: anna edwards, thank you very much. she will be moderating a special panel in cape town featuring bob diamond and mike rake. we have to dive into the bond market. yields up by two basis points. a huge swing, the biggest today's spike in german bond yields since 1998. i will break it down after the break. ♪
jonathan: good morning and welcome back. mario draghi has a messenger for -- a message for investors, get used to volatility. here is all you need to know in less than 90 seconds. >> to keep the ecb interest rates unchanged. the full implementation of all of our monetary measures will provide the necessary support to the euro area economy. we expect economic coverage to broaden. domestic man should be supported by our monetary policy measures and have favorable impacts on financial conditions, as well as
progress made by structural reforms. recovery is on track exactly according to our projections. this is a high-class problem and we are far from that, we are not discussing that. if there were other factors which would for example create an unknown wanted -- unwanted tightening of mutton -- monetary policy there are downside risks to growth then we would have to review that and reconsider the size timing, desire of the problem. if needed, we will add to debt. so far we see no reason to do that. we should get used to. the higher volatility. the council of the ecb once agrees to stay in the euro.
there should be a strong agreement. jonathan: get used to hikes in volatility that has certainly been clear if you have been following the bond market in the last month. we have chief investment officer at london capital group. i find this interesting, the headlines and hikes in volatility. shouldn't the height in german yields be a concern? >> politicians try to move the screens in front of our eyes. the big story is someone has lost a large amount of money with moves the equate to 8%-9% full. for larger maturities, even more. the main question, is this the
beginning of further spikes in the rate? or is this a consequence that everyone has? jonathan: i go back to april 17 when we had record low yields the curve versus now, you're looking at a 100 basis point move at what point does this become a problem? how much of a move to they tolerate in the bond market? >> might take is it is higher than one should expect. most concern should be around is credit flowing, how does that affect the core of the eurozone and the one that really holds the fate of the country, small and medium companies. at what point does the trans-for into high capital for businesses. that in environment where
lending is done through banks should not be as worrying as for the u.s. in 2012. jonathan: we are seeing nervous markets. a little bit of a beat, a massive outside moves off the back. when you look at this market, is nervousness feeding nervousness? >> i think so. i think people up until recently had a false sense of current -- since of comfort. -- sense of comfort. in an environment which all of a sudden gets a little bit better, and an environment where the disconnect between the real and financial economy is strong as ever you have a cross currency in europe and the u.s..
i think the story is that investors will have to live with higher bouts of volatility. jonathan: the rate story falls into the affect story. we have seen the biggest two-day part on the euro since march 2009. high rates, stronger euro, is there a way to tolerate a backup and yields? >> that is another story. that is the thing that worries them the most. if you see the euro reacting to this constrain or reduction in the interest rate differential that's will be worry some the most. luckily, usa should get better. in a way, they will bailout mr.
draghi. jonathan: people at home saying i don't trade bonds or fx, you have been if you have been trading stocks are you -- trading stocks. how do you trade? >> by being selected. the european stocks story is filled with complacent the -- complacency. evaluations are not the -- necessarily giving you huge room for errors in -- room for errors. look for businesses that do not have a huge sensitivity to the cost of capital becoming a problem. maybe mid and large caps. look for businesses without a huge sensitivity to the things most stocks have until the end of april.
jonathan: have you been adding positions? >> we have been in the u.s.. a little bits countercyclical to a lot of people and their beliefs. u.s. was some extent left behind and benefit from a better situation. in a way, european stocks have enjoyed a perfect storm. low oil, and good sentiment. jonathan: the perfect storm, not just a storm. stay with us, after the break we will talk about turbulent of artie 5000 feet. chinese stocks keep storing, when will they find a cruising altitude closer. we have had a rough session in china, we dropped and then we came back. 26 minutes into the session, let's check in on equities for you. the 5100 and softer, the dax
euro sterling, this one has been on a charge recently. coming off of six straight days of gains. it is up by 2/10 of 1%. the 10 year, a yields of 0.9%. two days before, what a move. the biggest two-day spike in german yields since 1998. the bond markets are interesting but so are these stocks. >> i am starting with basf, an unlikely white night for syngenta. there are reports that basf is considering taking an offer for syngenta. could this derail monsanto and their plan for a takeover? they rejected we have initial -- they rejected the initial bid in
may. take a look at deutsche telekom, mrs. after we heard dish network was in talks to merge with t-mobile. deutsche telekom is the parent company of t-mobile. interesting, a tech news website said a deal between dish and t-mobile is akin to to people who took up because they are the last two standing in a bar at the end of the night. the t-mobile ceo said that with no comment. anglo american down today. miners actually the biggest decline is on a stoxx 600 this morning. this is a gold and industrial metals are dropping today. nickel, in particular, taking a hit. jonathan: great work.
in the u.s., bill gross had his eye on equities further east. he called the german bunds the short of a lifetime. he says the next short of a lifetime could be the china shenzhen index. let's get to richard frost in hong kong. richard, break down what bill gross is talking about. richard: just to talk about what happened in shenzhen after those comments he looked clever after we thought they shenzhen composite plunged 6.1%. that index recouped all of those losses in a similar short space of time. what he is looking at is what he called a hyperbolic line and they shenzhen composite.
to me that seems like an understatement. it gained almost triple in the last 12 months. that makes the market cap cannot be larger than the whole of the u.k. when it comes to stock markets. you cannot lose in shenzhen. you have not been able to. there are only 1700 companies on the index that have fallen this year. with valuations now, when you look at projected price to earnings, you look at any stock market, nasdaq is only 22. you can see why he thinks this is a market poised to decline. you can also see why you should not that egg instead just yet. as volatility shows today, people are getting more nervous about where the market is headed. jonathan: richard, i guess the take away for me there is the
selloff in the morning. the ipo story, china nuclear power is hoping to raise $2 billion. i hear the bids were quite higher. richard: a little bit. some $270 billion. you have to look at the performance. if you look at what the some hundred 40 ideas in china this year, they have gained more than 500%. you wonder why those bids were not higher, it is almost impossible to lose. people are loading up on debt putting it in this guaranteed. this fits in with what china's government wants. instead of the country selling bonds to build nuclear reactors they can raise money from ordinary investors.
of course the risk is, how much further kenny's ipos go? at the moment there is no sign that interests in demand for getting into the early stage will go away. jonathan: richard ross fantastic. let's move it on. cio of london and capitalists to let us. bill gross is clearly still here. you look at this huge swing and it comes back again. you think profit is coming out of the market and then you see the ipo. the government wants to raise 2 billion. i keep asking a question, have you ever seen anything like this? people say the 90's, is that we are -- is that what we're seeing? >> it is human nature. we can't avoid the greed of chinese retail investors.
it smells like a bubble. it looks like a bubble. it walks like a bubble. it is a bubble. the main message for people like you are not necessarily investors sitting in front of the computer is this really something we should worry about? i think the asia-pacific in general, in particular, the hong kong chinese market is full of pretty decent companies that are delivering decent margins and margins in emerging markets are important and good evaluations. that is what should worry us. the main message for me is you have a long-term horizon, more than 24 months? that is difficult because we're short-term oriented. chinese hong kong listed stocks are good then. if you don't have that --
jonathan: that is the point. i look at two charts, one is the market cap chart china should be equity market have a cap the equivalent of hong kong, sure. but the other chart is the evaluation story. from that perspective quite clearly, they have doubled some of the stocks on a nasdaq. the other thing, bill gross, he got the trade wrong. what is the trade when you look at chinese equities in the short-term? >> the trend is to not, steer clear. that is the trend. inactive is the bigger virtue. don't engage. this is a market driven by sentiment. we are never going to get an informational edge. these mandarin newspapers, and
lets you read them every morning and understand what is going on with particular rumors which are obscure credibility is mild to say the least, do not engage. jonathan: even with the swings in the last couple of weeks still 100% gains on some of these indexes in china this year, what you tell them when a client calls you up and says why have you missed out on the rally in china? >> i say it is much better to miss out on something that we don't quite understand then to participate in the folly of human beings. jonathan: when you look at the market and people say the people's rank of china has an interest in this now not to tighten things up, but to let things rip because this market has become links to the health of the chinese economy, what do you say to that? >> it is true. they are good at taking it to a point to make an example. they did so a little bit with the domestic housing markets
particularly some of the corporate housing markets in the last one in four months. they're doing the same with some retail investors and saying, this could happen to you guys. ultimately the fate of the chinese growth story -- they have renter -- they have room to maneuver. the chinese story is all about to what extent he want to reengineer or put a cap on the 6% growth. i think what they are doing is probably the right thing showing people what could happen to you if you should throw fundamentals of the window. jonathan: i think fundamentals got thrown out of the window in china a while ago. still to come, decision day in the bank of england. governor carney has revamped everything to structure of meetings to sport teams. for now, 40 minutes into the session, equity are starting to roll over again.
government and greece will meet the first payment. he told people don't or a. chuck blazer admits to accepting bribes from bidders hoping to host the 1998 and 2010 world cup. the admission comes from a hearing made public yesterday. he pled guilty to 10 crimes. corona -- kuroda asked for a positive attitude and conviction because the moment you find out you can fly you cease forever to do it. i am is lost as you are. let me keep it on central bank the bank of england decides on rates today. when will carney finally start to raise interest rates?
jen ryan joins us for more. where are we? jen: the bank of england and their key is the inflation outlook. the rate increase does not look like it will happen anytime soon, certainly not this year. invite economists say early next year. some would say around july perhaps. i am looking at the greek situation and wondering how on earth does factors in. does it bother guys that much? jen: you have this decision friday, why would you move rates before that. once that is out of the way, and once you get a clearer picture with how well the u.k. economy fared in the second quarter, could well be the case there is enough underlying strength to say it is stronger than we thought and it might be a good idea to raise rates sooner. jonathan: 12 months ago to the day that mark carney was pushing the market.
as you look at things right now, it could be a busy summer for the bank of england. what is super thursday? jen: that is what we call the new procedure in august. it is part of their new move to increase transparency. you have the decision, the rationale, the minute, and he will get the quarterly were -- quarterly forecast all at once. they has started a dry run. they met earlier, they started moving forward to accommodate the schedule. jonathan: not worried about leaks? jen: no. jonathan: looking for is to the rate decision later. do not snooze, up next we will tell you everything else you need to pay attention to for the rest of the day. i am looking at a 5100 down by
.08%. the dax down i 120 points. let's talk out -- check out the euro-dollar, the biggest pop since march 2009. it is down by .10%. euro sterling is coming back just a touch freight the tenure german bonds is up 0.94%. we seem to be approaching wonderful percentage points. we will break down these markets and what is coming up for the rest of the day after the break. ♪
jonathan: the arguments between the oil companies has already begun. ryan chilcote is speaking to oil ministers and ceos. what will it take to get the oil companies back in? ryan: first off, it will take removal of the sanctions regime. the first thing they say is they want the sanctions gone. the next thing they need, perhaps even more challenging, is they need a deal that they like. i was talking to bob dudley, he said that would be a psa, a production sharing agreement that is where iran would award
the contract where someone could explore and drill, cover the costs with revenue from the drilling, and then share that revenue with the islamic republic. i put that idea to the oil minister of iran and he said no cigar. >> not psa. ryan: you think it is unfair? >> it makes the situation more -- attractive for them. long-term -- but it is not psa. ryan: this is contentious stuff. the alternative is a service contract, that is what iraq does with a lot of oil companies. a lot of the oil companies do not like them.
they think they are economically not very profitable. the question is who has the upper hand? presumably it is the iranians because all of the oil companies want to get in so the iranians should be a will to dictate conditions. i spoke with the owner and ceo of russia's largest independent oil company, he was in iran for a long time, i said is this the case? he said actually they don't call the shots. grexit countries with large oil and gas reserves are beginning to compete with each other. mexico is opening up and has potential. there are big shale opportunities in the u.s.. iran needs to create terms that are attractive to investors. it has to be between a service contract and a psa.
ryan: we know that all of the big oil companies are chomping at the bit to get into iran. we once -- we know that bp wants in. what is becoming clear is, yes maybe we get a deal that leads to an end to the sanction, maybe that process is sealed on june 30 after which it becomes a competitive regime. it remains to be seen, if in the end, the oil companies that do go and get a good deal for the shareholders jonathan: thank you very much for joining us this morning. that is it almost. let me break down what is coming up for the rest of the day. i am joined by guy johnson and hans nichols. hans, i managed to go an hour without talking about greece.
he comes out and says don't worry about friday. i'm not sure anyone is worried about friday, they are worried about the next month. hands: we just heard news from a german official it will be discussed at the g7 greece will be front and center. the real challenge will be not mentioning grace. guy: we have the former novell economic prizewinner knows something about the greek economy we will get his take on where he things we are. he sees bad things happening to greece if they leave. jonathan: under the greek radar that is why i have been able to avoid the situation, it is a vicious moves -- move in bonds markets. the headline is get used to heights in volatility, get used to a 100 basis point back up in the german 30 year, that is
huge. >> i imagine they can live without volatility. it will be interesting to see what these banks do in this volatile world. mario draghi said it is your to say. jonathan: i'm not talking about volatility, i am talking about a 1 -- wrong way back up and yields are guy: are we normalizing? is that what we're doing here? that is the way i am looking at it. the market pushed too far. the pendulum always swings too far. it is a big move. obviously it has a few people frightened. nevertheless, there was never going to be a situation where we found ourselves at the low levels we found. jonathan: they are talking about
volatility as he is saying dropdead with the bond market. he is talking about adding to monetary policy. >> he seemed to be talking more positively about inflation. he seemed to say this with in-line with expectations. it seemed like mario draghi sees the glass half-full. you see the euro, my question is, are we normalizing it? jonathan: and when did they stop? >> is the euro all greek autism -- greek optimism. the finance minister in germany said there is no progress. guy: the spread between the german tenure and bond got too big. i think that is the story. jonathan: euro-dollar, guy johnson will break it down. at 10:00 greek unemployment. at noon we will get the bank of